Is the utility-scale PV market under stress or growing into a new stage of maturity? The Clean Energy Council Large-scale Solar Forum included a panel session which looked at the past to predict the future.
The transition to renewables is well underway, with a full pipeline of wind and solar projects buoyed by enthusiastic state clean energy targets regardless of a lack of ambition at federal level. At the Clean Energy Council’s Large-scale Solar Forum 2021, CEC director of clean energy generation Anna Freeman asked a cross-sector panel for their assessment of the market.
Regardless of a vast amount of coal generation to come offline over the next 20 years there appears to be a slowdown in financial commitment to renewables, Freeman said. What is the outlook for large-scale solar?
Boom leads to…
Before answering the question directly, Rystad Energy senior renewables analyst Australia David Dixon provided a quick summary of how we got here. The past five years have seen rapid growth, he said. Before 2017, the market consisted of megawatt-scale projects that relied on government grants. Things got serious in 2017, however, with 19 utility-scale plants larger than 20MW starting construction, or 1.4GW in total capacity with most of it in Queensland. Investors saw high energy prices, high large-scale generation certificate prices and high marginal loss factors (meaning high conversion of generation to revenue) as a big green light to commit funds.
“Marginal loss factors were higher in the rural parts of the grid where you would want to connect utility PV assets,” Dixon said. “North Queensland was better than south Queensland, Broken Hill had a very high MLF; it was signalling that you could put utility PV in these parts of the grid.”
By 2018, another 19 projects greater than 20MW were being built, for 2GW capacity and with about half in NSW. It was too much for some, with RCR Tomlinson crumpling under the strain. A year later, construction had halved to 1GW and some owners were hit with MLF losses. Bushfires were next, followed by covid-19. Still, the industry completed another 1GW of solar farms in the year.
This year, a rise in shipping and commodity input costs for PV are pushing capex costs up, Dixon said, affecting margins and delaying start dates. “A final underlying theme is the diminishing amount of network capacity to connect into,” he said.
Edify Energy CEO and founder John Cole sees a glass half full. The initial rollout of projects a few years ago wasn’t normal, he said, “it was exceptional”. What may look like a lull since then reflects rationalisation in what is “a tough market”. “There was a digestion of the gigawatts [of large-scale solar] … needing to be operationalised, and that’s taken a lot more energy and effort than I think was anticipated,” Cole said.
Edify Energy has developed solar projects in Queensland, Victoria and NSW and built the 25MW Gannawarra Energy Storage System in Victoria, but Cole still sees “lots of opportunity in the market … I’m not a big fan of the doom and gloom story”. An improvement in MLF factors this year is another reason to be upbeat, he said.
Octopus Investments Australia managing director Sam Reynolds, who saw plenty of action in renewables as head of the global group’s operation in London, working across the UK, European and Australian markets, said delivery of a huge amount of projects on a long and skinny grid was always going to be hard. If it looks today as if the market has cooled then perhaps it’s “a solar slowdown that needed to happen”. Solar farms are safe-yielding, “kind of boring assets, as that’s what they should be”, he said. The best quality projects will go ahead and get access to power purchase agreements. “Our plans are quite ambitious in Australia for the future.”
Building “the best quality projects”, however, is getting harder, as the CEC’s Freeman pointed out. Maoneng Australia director of development Allison Hawke agreed. “We’ve moved past the stage of the low-hanging fruit,” she said. “We are at a stage where we are saturating available capacity on the network and still waiting on improvements in technology to address the next stage of growth.” State energy targets mandate a lot more growth over the decade, Hawke said, but developers are likely to be looking at sites that are less than ideal. At the same time, they’ve learned a great deal over the past five years and will be keenly aware of the risks of curtailment in grid-connection issues.
Develop in-house expertise
Reynolds at Octopus knows a little about the difficulty of connecting a plant, having endured a few setbacks with the 275MW Darlington Point Solar Farm in NSW. The key learnings, he said, are: strengthening internal grid knowledge and ability to communicate with the Australian Energy Market Operator and grid operators “on their level”, and bringing engineering capabilities in-house. To stay ahead of problems in the future Octopus has hired four engineers, including two from grid operator AusNet. Connection needs to be done “on a collaborative basis [with AEMO and grid operators] … to make these things work”, he said. “That creates the opportunity for getting the best projects, if you have in-house expertise.”
Cole at Edify believes concerns about system strength will be levelled out as developers and regulators understand how inverter technology can work for them. “Inverter manufacturers truly understand the key points from AEMO’s side,” he said. “Fast forward 20 years and this whole network will have to rely on power electronics.”
Not so fast
The cruellest product of solar’s success has been negative pricing, which can strike around peak output. In 2018 any typical month for markets in the NEM may have included about 20 hours’ of negative pricing, said Rystad’s Dixon, but these days levels are about 200 hours’ a month. “It’s gone up an order of magnitude,” he said. The obvious solution is to invest in storage and Dixon says the pipeline for lithium-ion batteries has blown out from 2.3GW in 2018 to 29GW today, although most of that is “intentional”. Financing these storage projects may be tough, he said, as “the arbitrage spread is too small relative to the cost of the battery and the ancillary services market is pretty thin”.
Hawke from Maoneng said for investors to back batteries with confidence we need to see consistent political commitment to clean energy, although, she then said, “we take a view that the time for government intervention is coming to an end”. Government policy directed at market-based mechanisms would be more effective than its possibly distortionary effects on project investment, she said.
Cole admitted Edify wouldn’t have been able to deliver the 25MW Gannawarra Energy Storage System in Victoria without financial support from ARENA and the state government. Negative prices are good when you’re a battery-owner but it’s the arbitrage that matters and it’s still challenging. “Batteries are conviction investing, because the economics today are a challenge,” he said, before predicting that new revenue streams will emerge for owners of storage assets.
As to the next 10 years, Dixon sees utility-scale solar overtaking rooftop; Reynolds says we will all be driving electric vehicles by 2030; Hawke predicts foreign powers may influence Australia’s transition to renewables in our domestic electricity market, and; Cole said, “Australia may grasp the opportunity that’s staring it in the face to become an energy superpower.”